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Shell takes $330m write-down on Enterprise deal

Financial Times: Shell takes $330m write-down on Enterprise deal

“The company tried to play down the news of the write-down”

By Rebecca Bream

Jul 02, 2004

Royal Dutch/Shell is to take a $330m (£189m) write-down on the value of exploration assets acquired through its £3.5bn takeover of Enterprise Oil, following unsuccessful drilling.

The Anglo-Dutch oil group also said it would sell underperforming assets in the US and Peru, a move that would allow it to direct investment towards key countries such as Russia.

The company tried to play down the news of the write-down by saying that the Enterprise deal had already delivered $355m of synergies, compared with original expectations of $300m of savings. Analysts said that the write-down was disappointing news although the ultimate impact on the company would be small.

Vincent Zelenko, oil analyst at JP Morgan in London, said the news indicated that Shell overpaid for Enterprise Oil. “We didn’t think the acquisition was an excellent idea, and this confirms what we thought,” he said.

The sale of non-core assets in the US and Peru was welcomed by the market, however, and analysts said that many oil and gas companies were currently trying to clean up their portfolios.

Most of the $330m after-tax write-down related to the price paid in 2002 for Enterprise’s exploration assets off the British Isles, including the Cong prospect off Ireland and the Beluga wildcat well off Norway.

The remaining $35m represented the cost of drilling and geological studies done by Shell since the acquisition. The write-down will affect second quarter profit and loss figures, to be announced at the end of this month.

The Enterprise exploration projects were at a relatively early stage of development and had been booked only as intangible assets, so the failure to find enough oil would not effect reserve levels.

Shell is selling a package of pipelines and terminals in the Midwest of the US to Buckeye Partners, a pipeline company, for $530m in cash.

This follows last week’s $492m sale of Shell’s Texas and Great Plain product pipeline and storage assets. The group will also sell its Peruvian retail, commercial and marine business during this year.

Earlier in the year Shell was forced to admit it had over-estimated its oil reserves, leading to shareholder outcry and the removal of top management.

Shell has made more than $3.5bn of divestments so far this year, more than its annual average of some $2bn, and analysts predicted that the final figure for 2004 would exceed $4bn easily.

Shell’s London-listed shares closed down 3½p at 401p yesterday.

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